Company Perspectives:

WD-40 Company, with headquarters in San Diego, produces a variety of lubricants, including the familiar multipurpose product WD-40. WD-40, with its hundreds of uses, is distributed through industrial distributors, automotive stores, mass merchandisers, hardware and home improvement centers, and other retail outlets around the world. WD-40 Company markets its products in more than 148 countries worldwide and recorded sales of $130.9 million in 1996. WD-40 Company also produces 3-IN-ONE Oil and T.A.L. 5, a premium heavy-duty lubricant aimed at the industrial market. WD-40's goal, at the beginning of 1997, is to achieve a dominant market share of the entire category worldwide.

Company History:

Since the 1950s, the San Diego-based WD-40 Company has dominated the U.S. market for its namesake multipurpose lubricant. The WD-40 substance is a petroleum-based lubricant, moisture retardant, and rust preventative. It is used in over 75 percent of American households, and is ranked in the top three percent of all brands in consumer awareness by Landor Associates. One of the product's strengths is its versatility: it has been found to improve the performance of sewing machines, attract fish, loosen rusted nuts and bolts, and unfreeze door locks and handles. Sold through industrial distributors, automotive stores, mass merchandisers, hardware and home improvement centers, WD-40 is found in over 148 countries worldwide. A one-product company until the early 1990s, WD-40 Company now also produces 3-In-One Oil and T.A.L. 5, a premium heavy-duty lubricant aimed at the industrial market.

The Birth of WD-40, 1953

Although WD-40 has been a household name for several decades, it did not begin as a household product. In 1953, Norm Larson of Rocket Chemical Company developed WD-40 as a corrosion protector for missile covers for the San Diego-based Convair, an aerospace and defense contractor and a division of General Dynamics. Eventually, WD-40 was intended for use on NASA's Atlas missile. The name WD-40 stands for "water displacement, formulation successful in 40th attempt," because it was on the 40th try that Larson perfected the product. Employees at General Dynamics discovered that WD-40 was perfect for a variety of home uses, and they began sneaking the lubricant home from work. By 1955, Larson began experimenting with putting WD-40 in aerosol cans, and in 1959, Rocket Chemical Company responded to the consumer market for a home lubricant by contracting with an aerosol packager and preparing WD-40 for commercial sales.

Rocket Chemical Company, which was founded in 1952 by Larson and three investors, was a one-room operation with a three-person staff. In addition to WD-40, the company produced rust resistors and removers for metal parts and tools for the aerospace industry. In 1960, the company grew to include 7 employees with sales of about 45 cases per day. Rocket Chemical Company sales representatives sold the product out of their cars to San Diego sporting goods and hardware stores. A slight recipe change in 1961&mdashding a dose of mineral spirits to the original formula to cover the petroleum scent--is the only adjustment ever made to Larson's original formula as of the late 1990s. Hurricane "Carla," which ravaged the Florida coast in 1961, increased WD-40's business dramatically, as it was used by hurricane victims to recondition water-damaged vehicles and machinery.

One Product Transforms a Company, 1960s

By 1965, WD-40 sales were so successful that Rocket Chemical Company ceased production of all other products to focus solely on the lubricant. Sales surpassed $1 million in 1968, and when John Barry became president the next year, the company officially changed its name to WD-40. In 1969, sales reached $2 million. Between 1969 and the 1990s, sales growth has been continuous.

With a mandate to accelerate both revenues and earnings, John Barry would pilot WD-40 to a position of prominence as an untouchable one-product company. The brother-in-law of one of the three original investors in Rocket Chemical Company, Barry garnered his marketing know-how working at companies including 3M, Avery Label, and Adams Rite. With a virtually unknown product and no working capital, Barry's marketing strategies were straightforward and simple, emphasizing free samples (including 10,000 WD-40 samples each month sent to soldiers in the Vietnam War to keep their weapons dry), trade shows, and magazine advertising. Product awareness was built through manufacturers' representatives, who worked on commission and sold the product to wholesalers only. No written contracts were held between WD-40 and the manufacturers' representatives, and the relationship could be terminated with 30-day notice. The underlying philosophy behind these strategies was to market the company's one product to its full potential, diversifying the uses of the product, not the product itself, while keeping costs down.

Going Public, New Growth, the 1970s

In 1973, WD-40 went public. Prior to this first offering, the company was a Subchapter-S corporation. Shareholders gave up this election by going public, receiving looser restrictions on their estates and tax benefits in exchange. Heavy demand escalated the initial price of a 40,000 share offering to $16.5 from the originally intended $15 a share, and later in the year shares surged at $34, dropping again to $15 at the end of the year. The initial offering generated net proceeds of approximately $590,000, of which $350,000 was used for a new plant, with the remainder added to working capital. The company paid half its earnings in dividends, increasing dividends with earnings growth. The next year, the company moved its headquarters to its present location on Cudahy Place in San Diego. Prices in 1974 were raised by 10.6 percent.

In 1978, after 25 years of business, sales reached $25 million. The following year, sales increased to $34 million, with earnings of $5 million. Sales and earnings had increased at a 10-year compounded rate of approximately 35 percent. The company remained tightly held, with over half of the stock held by officers, directors, and relatives of the original three Rocket Chemical Company investors. The wholesale price of the company's product rose 43 percent between 1969 and 1981, while the U.S. wholesale price index increased 132 percent during this period. Costs at WD-40 had always been low, since the focus on one product meant there were no research and development costs. The company at this time had only 32 employees, with a sales force of 65 manufacturers' representatives selling the product to about 14,000 wholesalers. The entire manufacturing operation was staffed by one part-time employee, who created the WD-40 concentrate from a mixture of off-the-shelf chemicals. About 28 percent of sales were spent on selling, marketing, and administration. Also, because the company had no debt, minimal overhead, and rented its office space, WD-40 paid about five percent back to investors.

In 1979, 35 million cans of WD-40 were said to reach consumers each year, with 55 percent sold to homeowners and sportsmen and the remainder purchased by commercial and industrial users. The first price increase since 1974 raised the cost of the cans by 15 to 16 percent. Half of the company's total assets were held in cash, with after-tax net earnings around 16 percent. In 1981, the company was selected by Forbes as one of the small, emerging growth companies on its "Up-and-Comers List." Continuing to experiment with innovative sampling as a marketing strategy, WD-40 entered into a partnership that year with Wagner Spray Tech, a spray gun manufacturer in Minneapolis. WD-40 samples were included in spray gun packages, along with instructional brochures. Both companies shared equally in the costs and profits of the sample program.

International Expansion, Mid-1980s

By 1985, sales had increased to $57.3 million, with a 21 percent increase the following year to $69.4 million. Earnings in 1986 were $11.6 million, and shares were sold at a new all-time high of $33, a 44 percent gain. Having already achieved great success with its one product in the U.S. in the 1980s, it was time for WD-40 Company to expand its presence in the world market. International sales at this time represented less than 5 percent of total sales (not including Canada). In 1986, rather than renewing its contract with its United Kingdom Distributor, the company built its own plant in Milton Keyes (near London). The next year an official subsidiary, WD-40 Company Ltd. (United Kingdom), was established to manufacture, produce, and oversee distribution of WD-40 in Europe, the Middle East, and Africa. Since that year, when sales for the United Kingdom and Europe were $10 million, earnings have grown rapidly. By 1992, sales attributed to France, Spain, and the Middle East had reached $17.5 million. Continuing to emphasize overseas expansion, the company bolstered its sales force in Europe by adding new sales representatives in France, Spain, and Italy. Shortly thereafter, Barry began sales expansion to Australia and the Pacific Rim. By 1988, European, Australian, and Asian markets would account for 21 percent of revenues.

Sales reached $71 million in 1987, and stock hit a high of 46. However, the October 19, 1987 crash of the stock market, causing a 508-point drop in the Dow Jones Industrial Average, caused WD-40's stock to drop to the mid-20s in November. With fewer than 100 employees, the company was still able to net $11 million in 1987. Every dollar of that $11 million was paid in dividends. At this time, the company had no debt and $18 million in cash, with a market value of $231 million.

In 1988, WD-40 changed its sales strategy, shifting from salesperson commissions to direct sales. This policy was implemented as a means to increase business with large retailers, who now formed a significant portion of the company's sales, with 40 percent of sales originating in 50 of the company's 12,000 accounts. Large retailers preferred the elimination of intermediary distributors, as a cost-cutting factor. Responding to this desire, WD-40, using a contract clause allowing the termination of the hiring agreement on either side with 90 days notice, decided to eliminate twelve distributors and instead hire direct salespersons to cater to the large accounts. Good earnings prospects and an increased dividend brought WD-40's stock to an October high of 33.25, and sales rose to $80 million, with net income increasing 40 percent to $25.4 million. However, the new sales strategy would prove dangerous to the company's earnings in the long run.

Eight of the 12 distributors sued WD-40, claiming that the company had promised them job security in exchange for company loyalty. In 1992, the distributors were granted a $10.3 million settlement. WD-40 appealed the decision. In the meantime, two additional distributors--who had not joined the original suit--filed a separate lawsuit in 1992, using the same lawyers. In 1993, this second suit was settled, granting the distributors $2.5 million. In 1994, the original case was again decided in favor of the distributors, costing the company $12.6 million. It is possible, since sales had skyrocketed from $80 million in 1988 to $100 million in 1992, due in part to the new sales strategy, the settlement fee may not actually have presented a real loss to the company. 1994 was the first year in a decade in which WD-40 had flat earnings, but profits still totaled $12.6 million on record sales of $112 million.

Competition has never presented a challenge to WD-40. Though the formula for the lubricant is a guarded secret, the company has chosen never to patent it. Although WD-40 is physically indistinguishable from other products--such as 3M's Q4, Borden's Ten*4, and Valvoline's 1-2-99--no contender has presented even a minor challenge, and WD-40 has buried over 200 competing products over the years. This included, as of 1988, 14 billion-dollar companies, whose economic clout was unable to unseat WD-40s blue-and-yellow can.

After over two decades of leadership, John Barry retired to become chairman of the board in 1990, replaced by Gerald Schleif as president and CEO. Schleif was previously WD-40's executive vice president and CFO and had served the company for 21 years. In 1990, WD-40 increased the price of its product for the first time in 9 years, raising it by nine percent. The company was named among "100 of America's Best Companies" by Fortune magazine in 1991. A new international subsidiary, WD-40 Ltd. (Australia), was established that year, to market the product in New Zealand, Southeast Asia, and the Far East, and a sales manager was employed to handle Hong Kong in 1992.

By 1992, WD-40 had an 83 percent share of the multipurpose lubricant market, with sales of $99.9 million (an 11.3 percent increase over the previous year's sales of $89.8 million). Stock was trading at 52. Two-thirds of those sales were generated in the United States, and WD-40 Company targeted international expansion as the key to increased growth, setting a goal of a 50:50 ratio.

The 1990s, Cause for Celebration

WD-40 celebrated its 40th anniversary in 1993, breaking the $100 million sales mark with sales of over $108 million. Plans for the anniversary bash included a commemorative anniversary can. The company was featured among the Top Ten Most Profitable companies on the 1993 NASDAQ exchange. Statistics revealed that 4 out of every 5 American households used WD-40, and that 81 percent of industrial and trade consumers also chose the product. Weekly sales in the U.S. amounted to over one million cans of the petroleum-based lubricant.

A major new direction was implemented in December 1995. After over 30 years as a successful single-product company, WD-40 acquired 3-In-One Oil from Reckitt & Coleman (UK). The following year a new product, T.A.L. 5 (a premium, extra-strength lubricant), was developed and launched. A new corporate logo was designed, to reflect the integration of two new products. In that same year, WD-40 changed its propellant from hydrocarbon to CO2, reducing Volatile Organic Compounds content to comply with new environmental regulations. In 1996, WD-40 continued its growth, with sales of $131 million and income of $21.3 million. International sales grew in 1996 to $51.4 million, a 28 percent increase over the previous year, with international business accounting for 44 percent of sales, and with WD-40 marketed in over 135 countries and 30 different languages.

The WD-40 Company, then, has achieved practically unparalleled success in the first two phases of its executive identity: first, as a one-product company on the domestic sphere, and second, peddling the same multipurpose lubricant to world markets. In the late 1990s, the company is launching Phase Three in what it intends to be an uninterrupted story of growth. The integration of new products ends over 30 years in which WD-40's success was routinely linked with its status as a one-product company, and its colossal standing as the "generic" brand in its market. WD-40's stated goal, at the beginning of 1997, is to achieve a dominant market share of the entire category worldwide. This juncture, then, is a major turning point for the San Diego-based company, requiring an overhaul of long-trusted marketing formulas and strategies. The company's leadership has been cautious over the years, not prone to risk-taking in sales and marketing. It is unlikely, therefore, that the new product lines will destabilize the continued reign of WD-40 as the leading multipurpose lubricant. Whether the WD-40 Company will achieve further growth through the acquisition of new products, however, remains to be seen.